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Learning to dissolve an LLC can be beneficial if you’re thinking of closing down a business. It protects you from any liability in the future if anything were to happen. Despite seeming like it’s an unnecessary hassle, it’s actually easier to do than most people realize.
Why Dissolving An LLC is Worth It
In one word: liability. Taking the proper steps to dissolve an LLC is a way to ensure you’re covering your legal bases. When you register an LLC, you file documents with both your local and federal government.
If you don’t tell them your LLC is no longer active, then they won’t be able to know otherwise. This means they’re still expecting fees and taxes each year. This, obviously, is not great.
Once you say a proper goodbye to your LLC, you don’t have to worry about fees and taxes accruing in the background. Though “dissolving” sounds a bit harsh, sometimes you want to dissolve your LLC for reasons other than the business not working. But that’s a story for another day. Here’s what you need to start dissolving your LLC the right way.
The Investment Needed to Dissolve An LLC
To dissolve your LLC, you’ll need to spend some time filling out paperwork and notifying the right people. Though it might sound like a big job, dissolving your LLC isn’t as involved as you might think, especially if you run a small business.
However, there are ways you can make things easier on yourself. For instance, you’ll want to set aside money for any fees involved and unexpected expenses that can come with the dissolution process. You’ll also want to invest time in learning the specific process for your state, since this will vary depending on where your business is registered.
Chances are, there are lots of documents you’ll have to share with stakeholders within your business. With a simple document management tool like Dropbox, you can make the process of storing and managing documents easier on yourself.
Once you sign up, you get access to plenty of file space to store digital copies of paperwork, statements, and keep a record of important dates. You can also organize your documents by file or by date and easily filter through your files.
6 Steps to Dissolve An LLC
Below we go through the key steps you need to take to properly dissolve your LLC. Pick up some coffee and get comfortable. Here’s everything you need to know.
#1 – Get Organized
While this might seem like an obvious thing to do, you might be tempted to jump into things without taking stock of what you need to do first. But with LLC procedures it is best if you take the time to ensure you’re covering all your bases and know what you need to get started without overlooking anything critical.
What do we mean by this? First, take stock of what you’ll need to gather to ensure a clean dissolution process. For instance, if your business was a one-person show, you won’t need to worry about properly compensating employees or officially announcing that you’re dissolving the business.
However, if you were a bigger operation with employees, payroll, loans, or even banking relationships you want to take the steps to dissolve your LLC as cleanly as possible. Consider making a list of everyone that’s going to be implicated in the process.
You’ll also want to take full stock of your financials. Are there any outstanding debts that need to get paid? Do you have pending invoices that have yet to be paid? Are you able to cover employee salaries, if any, as you go through the dissolution process?
How about your online presence? Are there any websites that’ll need to be taken down? Any registered physical locations that’ll need to be canceled with platforms like Google My Business? As you can see, the list is getting long. This is why we recommend you create a checklist of everything you need to do to make sure you don’t leave anything out.
Then there’s the matter of paperwork. Gather all necessary paperwork needed to notify your state and local governments that your business is no longer operating. With the use of a tool like Dropbox, you can easily gather and organize all the paperwork you’ll need for the process. You’re also able to share documents with others through email. We’ll talk more about the paperwork process below.
#2 – Notify Stakeholders
Unfortunately, you can’t just file papers of dissolution and call it a day. You need to notify the most important people involved with your business. These can be stakeholders like:
- Banks and business lenders
- Any insurance you work with
- Partners and investors
- Agencies or businesses you have active contracts with
- Your secretary of state
- The state taxing agency
Notifying anyone who you’ve had significant business involvement with, besides state and federal authorities, will ensure a cleaner dissolution process without any pending deals left unresolved. It’s also a good way to stay in good standing with other entities you were previously involved with.
You’ll definitely want to notify your state and federal authorities with the proper articles of dissolution. This way, you’re in good standing in the case you’d want to start another business in the same state.
#3 – Pay Off Any Pending Wages And Debts
If you have any outstanding debts, now is the time to pay them off. Likewise, if you have any outstanding invoices, make sure you collect payments in a timely manner. Outstanding contracts need to be finalized as well.
Paying off wages can be yet another necessary step of the dissolution process. It’s important to be proactive about paying employees any final paychecks they’re owed, as well as any additional compensation necessary. As you close things down, you’ll also have to remember to properly file your employee taxes.
Employees need to be provided with W-2s for their own tax filing needs. If you offered a benefits package to employees you’ll want to get in contact with your provider to settle your retirement accounts and health plans.
Do you rent a physical location? Will you need to prorate rent for the remainder of the month? Do you rent any equipment you need to return and sign off on?
Throughout the whole process, it’s important to remember to keep a record of all the paperwork you process to further protect yourself from any liability issues that may arise.
#4 – Distribute Any Remaining Assets
At this point, you’ve paid off any remaining wages and debts, and you’ve collected any payments owed to you. Now you get to determine what happens with anything left over. If you’re a sole owner, this is easy–everything goes to you.
If there are a number of business owners for your LLC you’ll have to spend time figuring out how you want to distribute what remains, whether that’s business property or capital. One of the best ways to decide how to distribute assets? Leave it to a vote. It’s one of the best ways to ensure fairness and to make sure everyone is being heard throughout the process and preferences are being properly honored.
This is also a good time to involve your accountant to keep records and numbers accurate. Why? It’s things like these you’ll need to report come tax time.
#5 – Properly Fill Out And File Your Articles Of Dissolution
Filling out dissolution documents and filing them at your state secretary’s office is necessary to officiate the process. While this essential step is listed as the fifth step, it can either be the first thing you do or one of the last. The important thing is that you do it and you keep records of everything afterwards.
For example, if you live in California, you would need to file the appropriate paperwork with The California Secretary of State. You’ll also have to file your final tax return with The California Franchise Tax Board. To find the dissolution forms, you’d have to navigate to the Secretary of State’s website where you can download the appropriate forms.
Once filled in, you can either walk your set of forms in, or mail them. Some states might even be able to do things electronically. Either way, it’s best if you do your own research to see what the current state guidelines are where your business is registered.
The exact forms you’ll need to file depend on how the business members voted to dissolve. Whether the vote to dissolve was unanimous or not will determine the right forms for your business. Along with that, there are dissolution fees to think about.
Continuing with the example of California, it actually doesn’t charge any dissolution fees. But that can change from state to state. You can expect the filing process to take anywhere from three to four weeks. You also need to remember to withdraw any DBAs you were doing business with so the state can have an accurate record of that.
Remember that the dissolution filing process might vary from state to state. So it’s best to ensure what requirements are necessary for your state. It can be as easy as making a quick Google search with the keywords “LLC dissolution forms” and the name of your state. Usually, your official state websites end in a .gov extension.
In California, if you fail to dissolve your LLC, you’ll still be liable for the $800 annual LLC fee and you run the risk of losing the ability to do business in the state. This is yet another reason to follow through with dissolution until it’s officially finalized.
Once your secretary of state accepts and files your paperwork, you’ve completed the most necessary step of the process. However, you’ll want to end by taking stock of all your paperwork. This takes us to the next and final step.
#6 – Keep A Record Of Your Paperwork
At this point, you should be just about finished with the dissolution process. Your stakeholders were notified, debts were paid, articles of dissolution were filed, and you’re in good standing with everyone that was involved.
Just in case, it’s always wise to keep accurate records of all your paperwork. If you can’t keep originals, make sure you make copies and file them. You can avoid paper clutter by maintaining a digital filing account with a tool like Dropbox. It can be as easy as opening a file, giving it a name and date, and storing all your documents there for safekeeping.
This might seem like an unnecessary extra step. But if you ever get in a situation where you need to show proof of any legal documents or remember important dates, you can have peace of mind knowing you’ve properly stored all your data.
While properly dissolving your LLC can be an involved process depending on the size of your business, it’s a step in the shutting down of business that can’t be overlooked. It’ll protect you from potential liability now and in the future. It’ll also ensure you’re able to legally do business again in your home state. Hopefully this guide shed some light on the important steps necessary to dissolve your business entity correctly.
However, there’s one important thing to remember: This is not to be confused with legal business advice. You should consult with your attorney to finalize any procedures or if you have any questions regarding the specifics of your business.
If you liked this guide, check out our other in-depth resources to learn more. Our guide on How To Build A Brand can help you with your next business. Or maybe you want a guide that fills you in on the best interview questions if you ever need to hire employees again. If nothing else, we recommend you check out our guide on independent contractors.